Instruments of Trade Policy (Economics Essay Sample)

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Instruments of trade policy are the actions and steps that a government can take to influence as well as affect international trade. The first example of the trade policy’s instruments is the use of tariffs. Tariffs are the taxes that are mostly levied on imports. Sometimes, though, the taxes can be levied on exports. An ideal example is the Ad valorem tax. The second instrument of trade policy is the use of subsidies. These are payments made by governments to the domestic producers. An example of subsidies is tax breaks. The third example of instruments of trade is the use of quotas. Quotas, especially import quotas, are direct restrictions that are placed by a government on the quantity of some goods imported to a country. An example of quotas is the voluntary export restraint (VER).

There are various arguments, which governments apply to justify employing instruments of trade policy. The first argument, which is economic, is that they use them to protect the infant industry. Domestic producers need market for their products. The government applies the instruments of trade policy to reduce the imports into the country. The second argument (a political one) is the strategic trade policy. This is whereby the government applies subsidies to protect firms in industries which have substantial scale economies. The third argument is the maintenance of national security. This is whereby the governments prohibit or restrict the importation of products which may cause a threat to national security. An ideal example is the importation of semiconductors. The fourth argument is retaliation. When other countries use instruments of trade policy as well, the country has to go thoroughly analyze and counter these steps. This ensures that the instruments used do not have a significant impact on the local producers.

Management Focus “US Magnesium Seeks Protection”

The party that gains most from the antidumping duties imposed on the import of magnesium from China and Russia is US Magnesium. This is because they will reduce dumping from the two countries. Therefore, the price of magnesium will rocket, and this means more profit for US Magnesium. China and Russia do not benefit from these duties. The consumers of magnesium in the USA do not benefit from these duties either. This is because they will suffer from the higher prices on magnesium.

There are various arguments that the United States government might use to impose these antidumping policies. They might claim to be protecting the infant industry from unfair competition. They might as well use it as retaliation. This is because the Chinese and Russian governments could have employed various instruments of trade policies to aid in exporting the goods at such low prices. They might also be seeking to protect US Magnesium because the magnesium industry has substantial scale economies. This means that the country can gain a lot from the imposition of these duties. In the short run, the consumers of magnesium might view such actions as unfair. However, this is in the best interests of the United States as a country. It will ensure growth of the industry and easier penetration to the outside market.

In my opinion, the producers’ interests should be of primary importance. Therefore, they should be given priority. This is because, when the producer is not protected from external competition this can lead to the collapse of the industry in the country. This means that the economy of the state will be affected in the long run. Protection of consumers has only short term results.

Conclusion

It is clear that whenever there is unfair competition at the international level, the governments involved intervene. A careful and clear research should be conducted by the governments before making important decisions. This is because they have adverse effects on the stakeholders.